Cashing In on the Electric Transport Boom

In the opening scene of the 1996 documentary Who Killed the Electric Car?, a rag-tag group of minor Hollywood celebrities gathered to bury a cause that had failed to ignite. Crowded around a grave in a Hollywood cemetery, Baywatch actors and bit-part filmstars bowed their heads as an electric car was laid to rest.

The film was billed as a murder mystery – who could have killed off such a clean, young beautiful thing? – and chief among the suspects was General Motors (GM). Having leased 800 electric cars out in the early 1990s, the car giant had later sabotaged their push for electric cars, recovering the prototypes and crushing them in Californian scrapyards.

But the real reason GM did away with their electric cars was far less mysterious than the film suggested. It was simply not economical. Even after a couple of attempts to make the vehicle roadworthy - with cars that ran on lead acid batteries – GM’s upgraded nickel battery vehicles were costing them up to $80,000 to build. That was about twice the guide price of the actual car.

And once it was out on the road, there was the real possibility you could be left stranded, should the battery unexpectedly run out of charge. It made little sense to keep making such a car ­ after all, who would buy it?

But it seems that reports of the electric car's death have been over-exaggerated. In fact, thanks to the Japanese, the electric car is very much alive and well, and could soon be swarming all over the roads of Tokyo. That's partly down to government subsidies – the Reva Electric Car Company will get $2,600 for every electric car they make, for example.

But it's Japan's electrical utilities that have really been pushing for electric cars. As one Tokyo Electric Power (Tepco) chief told the Financial Times, the reason that utilities like electric cars is because it allows them to sell electricity at night. Most drivers prefer to charge their cars at home during the utility's off-peak hours, using regular power sockets. In one Tokyo prefecture, the local utility is providing 150 quick recharge stations as part of an effort to put at least 3,000 vehicles on its road within five years.

Stung by paying $4 a gallon for gas, Americans have also found a new respect for the electric car. Four out of five American consumers said they would consider a hybrid, such as the Toyota (TM) Prius (which use a battery backed by a petrol engine), when they next replace their car – although that may be some time off. Meanwhile, a sleek Lotus-styled electric car by Tesla Motors has just been brought to market with a price tag of £92,000, for the wealthier conspicuously green consumers. Apart from the price of gas, recent developments in using lithium batteries have cut the cost of installing batteries to £8,500.

A fleet of plug-in cars is now expected to come to market over the next two years – and this time they will be practical as well as green. The new Chevy Volt is expected to drive 40 miles on a single charge (which takes about three hours) and more than 300 miles if its petrol engine is tapped to recharge the battery. The US Department of Energy is already studying the implications of plug-in cars grabbing a 25% share of the market. "Investors should do the same," says Jack Hough in Smart Money Magazine. We have a look at two companies set to profit below.

Two component suppliers charging ahead of the competition

The best way to invest in the transition from the petro-car to the electric car is through those companies making the components, reckons Jack Hough in Smart Money. He likes Ener1 (HEV). One part of the company's business involves using nanotechnology to solve problems with the new lithium-ion batteries being used in electric cars. Just like the lithium-ion batteries used in laptops, measures need to be taken to make sure such a big battery doesn't catch fire. But the firm is also uniquely positioned as the only American supplier of advanced lithium batteries, says Hough. This $781m company is on the cusp of turning a profit, starting with a $70m supply deal with Norway's Think electric car.

The electric car is about more than just the battery, of course. A company such as Borgwarner (BWA), which makes fuel-efficiency components, such as turbochargers – reducing emissions in the backup petrol engine in hybrids – will also do strong business in the years ahead. Borgwarner already supplies parts for hybrids from Honda (HMC), Toyota and Ford (F). The group just reported a rise in quarterly earnings to 74 cents a share, from 64 cents per share a year ago, on the back of strong international sales and despite the current weakness in the American car market. The stock trades on a forward p/e of 13.1.

Disclosure: none

Comments

[CLH:]

Sorry but anything based on a gov. subsidy will not be able to compete with a something that makes sense --like a car run with gasoline.

An electric car means everyone must have 2 cars. Is that being green? I think not.

2008 Sep 10 11:15 AM

[Doug Korthof:]

You are so WRONG. The EV1 was originally released on lead-acid batteries, not NiMH; and there were 650 in the original "1997" format. There were problems with failure-prone GM-Delco lead batteries, once they were upgraded to lead-acid PSB EV-EC 1260 batteries, they had a range of over 100 miles and never failed. In 1997, Toyota and Honda released NiMH EVs that were superior to the original GM EV1 and cost less.

It was 2000 (starting in Dec., 1999) before GM was forced, by CARB, to start releasing some of the 465 NiMH EV1.

Even though these had inferior GM-Ovonics NiMH batteries, they had an EPA certified range of 140 miles on a charge. With superior Toyota NiMH, such as are still running in the Toyota RAV4-EV (last sold in Nov., 2002), the EV1 would have had over 200 miles range.

Add them up: Lead-acid, not NiMH, over 100 miles range, the batteries were NOT the problem!!

And 650+465=1115, not "800". At least you don't repeat the GM lie that "nobody wanted them, they didn't sell".

Perhaps you should study more, then I'll read the rest of this puerile article.

2008 Sep 10 11:37 AM

[EV Man:]

Doug, I couldn't agree more. An excellent comment.

This is article is factually incorrect to the highest degree.

Also, the EV1 NEVER had a "petrol backup engine". It was a pure electric car.

Maybe Mr. Eoin Gleeson should actually watch "Who Killed the Electric Car" before passing comment.

2008 Sep 10 12:22 PM

[Galen:]

I tried to purchase (well, lease, since GM wouldn't sell any) an EV1 years ago and had 3 visits to the dealership fail to even get the door of the car unlocked since apparently only one salesman at the dealership was authorized to allow test drives and no one appeared to know when he worked. After the first year of the EV1, the dealership didn't even bother keeping a "tester" – they simply called the next person on their waiting list whenever a car became available. GM could have "sold" many many more EV1s than they did. It was a very peppy and efficient vehicle.

2008 Sep 10 07:01 PM

[Miken:]

Once again, Seeking Alpha has allowed another uniformed, inaccurate article to appear under their banner. It's what you should expect when having an economist write an article on a highly technical subject such as electric cars. Mr. Gleeson, you could have been better informed if you had just done some research on the internet.

The only accurate part of the article is the statement that "It was costing GM anything up to $80,000 to build the car because the battery was so expensive ­ that was about twice the guide price of the actual car."

I wonder if Mr. Gleeson is ready for the bashing he will get from the GM/Big Oil conspiracy wackos.

2008 Sep 10 09:22 PM

[sunuse1:]

I worked on the original prototype Bill of Material for the EV! at GM. The real reason it got cancelled is because the suppliers didn't want it then and don't want it now. At that time there was something like 20,000 parts in a 5.7 liter corvette Bill of Material and only a few hundred parts to make up the motor and batteries for the EV1 so you do the math. If you can give GM $25 billion to give $24 billion to the executives at GM..
I guess they will do you a favor and remake an electric car and screw the suppliers. Wagner just got a 40% pay increase two months ago which brings him to $17 million a year. At some point we should figure it out, the money only goes to the executives at GM not the employes. If you are better off now than you were 8 years ago. I work 100 hours a week with no over time pay and my house is worth half of what it was worth 8 years ago. But if you want more of the same you should vote for Mcain.

2008 Sep 10 10:06 PM

[Eoin Gleeson:]

Thank you for your comments. I agree with Miken that I do not have the technical expertise that is evidence among some of the commentators here. I understand that the original generation of the EV1 ran on a lead acid battery and that GM installed a NiMH battery in the second generation. That was the car model I was referring to in the article, and I stand by my claim that it was the cost of the car - rather than anything else - which was the motivation for recalling these vehicles.

2008 Sep 11 06:08 AM

[BlueOkie:]

An excellent source of information is Stan Gibilisco book "Alternative Energy DeMystified". Covers everything from burning wood to Aeroelectric power plants (earth's ionospher supercapacitor). All have pro's and con's. The government is not the solution! It already owns all the oil in this country and leases it out. The Republican Congress passed a bill on freeing up oil, but Clinton vetoed it. Ofcourse oil was only about $20 a barrell then. Now Pelosi and Reid, take a month vacation before doing anything. OPEC is a oligopoly, and we need to produce our own oil. Other sources of energy are out there and will come to market - when demand, technology and price meet.

2008 Sep 11 08:44 AM

[Paul Killinger:]

OK, so GM crushed their electric cars. According to the proponents of this technology, they shouldn't have. I understand that part.

What I don't understand is what happened to the electrics being made by the REST of the automakers. If they were so successful, why didn't the OTHER car companies keep making theirs?

2008 Sep 11 08:49 AM

[Stephen Met...:]

I find it interesting that almost all the comments churn around the past history of the electric car and few, if any, have to do with the future. I agree with Mr. Gleeson that electric power, pure or hybrid, will drive the future...the near future.

2008 Sep 11 09:19 AM

[William Taylor:]

As an investor in Zenn Motor Car I am betting on eestor and Zenn to realize the dream. Sure is speculative but if it works the profit will be real.

2008 Sep 11 10:33 AM

[Eoin Gleeson:]

Many thanks BlueOkie - I shall get my hands on that book.

2008 Sep 11 10:57 AM

[creativforce:]

It just goes to show how completely Big Oil can manipulate information. This article is fifty percent wrong. Half the posters have studied enough to know which half is wrong, and half the posters believe what the oil companies are telling them. Yes electric cars may get here eventually, that much is right. But it will only happen because the Japanese are oil customers, not oil merchants. EV1 was a great car, the NIMH battery worked just fine. Chevron controls the NIMH battery and the longer they keep it on a shelf, the more gas they can sell. The Mcain/Palin ticket is accepting gargantuan contributions from oil companies, their employees and their stock holders. Palin comes from a state where citizens don't pay taxes, but instead get kick backs from oil companies each year just for living there. Obama (supposedly) is not an oil puppet. We'll see what happens if he gets elected. Or if he gets assasinated? By the way read Barr McClellans book "Blood, Power and Money" about how Big Oil has manipulated politics in Texas since the 1950's (and how they paid for the Kennedy assasination.) If you think I am paranoid, you must think the Iraq war is about truth, justice and the American way. You must not know about the millions of dollars Cheney and Bush have made in Haliburton stock, and you probably think global warming is a leftwing conspiracy. Those nerdy weather scientists living in Antartica must be acceppting huge amounts of payola to scare us all into voting for Obama.

2008 Sep 11 11:05 AM

[10Q Detective:]

Ener1 Chief Executive Charles Gassenheimer claims that each dollar of capital expended at its automotive battery subsidiary EnerDel would return between $4.00 and $6.00 in annual revenues. A significant claim- - as Ener1 has generated minimal revenue to date, for its battery technology is still in development.

industry.bnet.com/ener.../

2008 Sep 11 12:25 PM

[tinajuarez:]

OOOOOOOOoooooo When I am looking at Eoin Gleeson, am I also looking at that famous sock puppet Kent Beuchert???? Who is quoting whom w/o reference???

2008 Sep 13 02:07 AM